Introducing a new payment mechanism for health workers in Switzerland

Introducing a new payment mechanism for health workers in Switzerland: Pay for performance (P4P) in the primary health care setting

DRG Diagnosis Related Groups
FFS Fee for service
GDP Gross Domestic Product
KVG/LAMal Federal Health Insurance Law
MHI Mandatory health insurance
OOP Out of pocket payment
P4P Pay for performance
QOF Quality of Outcome Framework
Tarmed Tarif medical
THE Total Health Expenditure
VHI Voluntary Health Insurance

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Introduction 4
The Swiss Health Care System 5
Organisation and service provision 5
Financing, revenue collection and pooling 7
Purchasing 9
Main sources of inefficiency and inequity 10
Pay for Performance for health care workers 11
Economic Rationale 11
The Policy Reform in Practice 14
Critical assessment and Challenges of the Policy 17
Conclusion 19
References 20

In the health care system in Switzerland, providers in the ambulatory sector are remunerated by a fee for service mechanism. The current system lacks a focus on quality, since it does not hold providers accountable for quality or efficiency and delivering additional services increases provider profits. In Switzerland consumers have a significant choice between multiple providers, but little information is available on quality to inform their choice.

The purpose of this essay is to evaluate a policy reform, introducing pay for performance (P4P) mechanism for the payment of primary health care providers. This policy reform addresses the improvement of transparency and quality of health care provision, enhancement of patient’s outcomes as well as aversion of cost escalation.
The Swiss Health Care System
Switzerland’s government has a federalised, decentralized structure which is also reflected in the highly decentralised health system, with the 26 cantons being largely responsible for the provision of health care. The health care system combines aspects of managed competition and the integration of interest groups in the policy process in a regulatory framework shaped by the influences of direct democracy. (1) Another important characteristic is liberalism and the major role that actors outside the public sector play in the health care system. The current system came into effect in 1996 with the introduction of the new Federal Health Insurance Law which sought to “introduce a perfect managed competition scheme across Switzerland, with full coverage in basic health insurance”. (2) It resembles the benefit system of “traditional sickness insurance” (3) and according to the OECD report, the Swiss health system is among the best in the OECD, but Switzerland is currently spending 11.4% of GDP on health in 2009, well above the OECD average of 9.5% of GDP. (4)
Organisation and service provision
There are three main bodies involved in the organisation of health care: the government, the health insurance companies and the providers. The government is involved at three different levels: the federal level, the cantons, and the municipalities. See Table 1 for the organisational structure at the different governmental levels.
Table 1: Organisational structure at federal, cantonal and municipal Level (4)

Federal Cantonal Municipal
Legislative and supervisory role on sickness and accident insurance, defines the minimum benefit package that qualifies for the mandate
Legislative and supervisory role, control over hospitals / nursing homes Control over hospitals / nursing homes

Makes a decision on hospital planning and lists

Ensuring the availability of the health care infrastructure Implementation of responsibilities delegated by cantons; Provision of nursing and home care
No control over ambulatory services
License health professionals in
independent practice, authorisations to open a medical practice
Implement nationwide fee schedules for physicians and hospitals

The second main body are the mandatory health insurers (MHI) which have all become private companies with the introduction of the KVG/LAMal in 1996. The third main bodies are the providers, including hospitals and private practice. Healthcare service provision is generally organized at the cantonal level, with only a moderate amount of federal supervision. Cantons have relatively little power over primary care provision, while they have increasingly more over hospital-based care. Each of the 26 cantons has its own constitution and is responsible for licensing providers, coordinating hospital services, and subsidizing institutions and individual premiums. See Figure 1 for the organisation and how the different actors are connected.

Figure 1: Organization of the health system in Switzerland. From DePietro et al (1)

Financing, revenue collection and pooling
Resources are collected mostly through taxes and MHI premiums, a considerable part of tax resources are subsequently allocated to the different social insurance schemes, in particular as subsidies for the purchase of MHI. (1) Revenues of MHI companies come from the premiums payed by MHI holders as well as from subsidies for premiums for low-income households. MHI companies are the most important purchasers and payers in the system, mostly negotiating collective contracts. The next largest components are out-of-pocket (OOP) payments, amounting to 26.0% of total health expenditure (THE), and government spending, mostly from the cantons, covering 20.3% of THE. (1) Figure 2 shows the sources of financing since the introduction of the KVG/LaMal.

Figure 2: Source of Financing in Million CHF. Adapted based on data from the federal statistical office of Switzerland (5)

Table 2: Financing and delivery of health care in Switzerland
Main element Description
Source of Financing
– Taxes (Federal, Cantonal and Municipal)

– Mandatory Health Insurance (MHI)
– Out of Pocket costs
– Voluntary health insurance (VHI) companies
Financial intermediary Many insurance companies (57 in 2016 (6))

Service Provision Public
Access for low income and unemployed Universal system, health insurance is supported by subsidies to help lower incomes to afford premiums (4)

Payment of Physicians Nationwide FFS through TARMED, which links the revenue of the health professional to the quantity of service provided. (7) (5)

Payment of Hospitals DRG, case based (8)(9)(10), Contracts with health insurance providers

Residents are free to choose any authorized company offering MHI. The purchasing of health insurance is compulsory and insurance companies are mandated to accept anyone applying for insurance, regardless of age or medical history. The basic package, “Grundversicherung” is to be offered on a non-profit basis from the MHI and is based on community-rated premiums. MHI companies pool resources that they receive, but due to the different actors and decision makers an overall budget for health care does not exist. Risk adjustment is in place between the different MHI companies with those insuring healthier and younger people paying more into the pool.
MHI and government, more specific cantons, are the two most important purchaser of health care services and goods, with MHI being the greater one. Interactions between purchasers and providers are shaped by the corporatist tradition of collective contracts, and all providers that have been authorized by cantons are allowed to provide services reimbursable by MHI. There are different methods of payment among MHI, patients and providers. In general financial flows are split up among different government levels and different social insurance schemes. (1)
Physician Services
In all cantons, primary care providers typically work in independent practices, single or group, and are paid by insurers on a FFS basis (90%). Patients are free to choose any provider that they find suitable for their needs.
Hospital services
Patients can choose treatment in any hospital included in the cantonal lists. Hospital-based care provision and payment varies greatly between cantons, and it is jointly funded by cantons and MHI. Since 2007 all hospitals receive payment from insurers through a diagnosis-related group (DRG) system. This system incentivizes use of best practices and discourages long hospital stays.
Main sources of inefficiency and inequity
The introduction of the DRG in 2007 addressed efficiency and quality at hospital based care. But inefficiencies and inequities still exist in the current system including inequity between cantons (11) and a regressive health care financing (11) due to the MHI premiums which are not related to income and differ considerably between cantons. The current payment method of physicians is FFS, linking revenue to the quantity of service provided, with increased incentive of either increasing the number of patients or the services provided for each person rather than quality of care. This could lead to an overuse of health care under the FFS payment scheme and cost escalation.(12) Additionally there is a paucity of data on quality with lack of monitoring in Switzerland and the competition based on quality cannot be ensured. This calls for an intervention to gain more transparency using quality measures, encourage competition on quality as well as to remain efficient and avert cost escalation.
Pay for Performance in primary health care
We propose a focused policy reform introducing pay for performance (P4P) mechanism for primary health care providers in Switzerland with the aim of improving transparency and quality of health care provision, enhance patient’s outcomes as well as avert cost escalation. (13) Under P4P, providers are given financial incentives to encourage and reinforce pre-established targets for health care delivery as well as to collect information on quality of care. Payment for health providers will be linked to a measure of performance or efficiency rather than a specific service provided. (12,14)In the current system, incentives that foster efficient delivery of high-quality care and transparency are lacking. (15,16) Evidence suggests that publicly releasing performance data stimulates quality improvement activity (17) and research suggests the use of P4P in the out-patient, office-based providers (15–17). This policy reforms focuses on a P4P for primary health care practitioners.
Economic Rationale
Principal agent theory
One underlying economic concept is the principal-agency relationship, defined as “a contract under which one or more persons (the principal) engage another person (the agent) to perform some service on their behalf which involves delegating some decision-making authority to the agent”. (18) Each transfer of funds within the health care system involves a principal agent relationship.(19) Due to the agency relationship there is a risk that the optimal level of care will not be provided. The P4P seeks to align directly the interest of the agent with the interest of the principal with a view to improving the quality of care.
Table 3 describes the roles in the different principal agent relationships and the impact of the policy reform.
Table 3: Principal-Agent relationship addressed by P4P
Principal-Agent Agents role Principals measures Agent Incentives Proposed change to agent incentives
Patients (Principals) – Physicians (Agents) To deliver the best health care to the principal Change physician,
Report to authorities Maximise income based on FFS


Moral responsibility
Intrinsic motivation Maximise income based on P4P

Reputation: Public reporting of quality measures

Because of the reliance on the agent, it is likely that asymmetry of information exists, whereby the agent has more information than the principal. (12,20) In health care, the patient knows much less about the treatment than the physician. This leads to asymmetry of information and the question is, how to motivate the agent to act in the best interest of the principal. This information asymmetry might lead to providers acting in their own interest and therefore to supplier induced demand problems. (12) The P4P tries to align provider (agent) performance with the interest of the patient (principal) introducing quality measures. Another aspect of the principal-agent theory in health care provision is uncertainty with hidden information and hidden action as the basis. (21) This includes the fact, that the patient cannot fully monitor the decision process and the provider has clearly more information on the chosen course of treatment. (21) Figure 3 shows the relationship and possible mitigation of uncertainty through P4P.

Figure 3: Theoretical model of Patient uncertainty and motivation to comply. Authors own adapted from Bozan 2017 (21)

Moral hazard and adverse selection are two other issues that arise within the principal agent relationship. Moral hazard can be defined as a change in behaviour due to changes in risk perceptions. Adverse selection arises when conditions are such that certain types of individual would find it in their best interests to participate in a defined set of activities. All three issues—asymmetric information, moral hazard, and adverse selection can lead to market failure. The concepts underlying P4P also include efficiency. (15) Allocation efficiency is achieved when resources are allocated to optimize the benefit to a population. Technical efficiency in the healthcare system deals with minimizing cost and maximizing quality, or both and dynamic efficiency represents the optimisation of rate of technological change in the healthcare system. P4P programs are an attempt to address all three of these efficiencies. (19)
The key assumptions underlying the implementation of P4P mechanism are: health providers respond to financial incentives, literature suggests that financial incentives can change physicians practice (22); performance can be measured, can be influenced by providers and providers know how to improve performance; improved performance leads to better health; demand side barriers are not a major constraint. (23)
The Policy Reform in Practice
The agent-principal theory and information asymmetry are the underlying economic theories. The main economic arguments for P4P are its potential to lead to quality improvement, more transparency and an improved processes of care in ambulatory settings. (24) It has been suggested to implement it first in a pilot setting before implementing it on a large scale. (25) According to Rosenthal et al (26) there are five dimensions which act as key element for P4P programs. Table 4 shows the dimensions and the proposed implementation.
Table 4: Dimensions of P4P program, from Rosenthal et al (26)

Dimension Key issues Implementation
Individual or group incentives
Individuals: clearly identifies accountability, natural unit of contracting
groups: Bigger sample size, groups can share risk, invest in system Individual incentives, each physician will receive payment and is free to use it in his practice
Paying the right amount
Consider market share of sponsor, reward should commensurate with the incremental cost of the quality improvement required, including the lost revenue, more effective to vary the payment approach according to the stream of cost that adherence creates (26)
P4P on top of FFS, define maximum performance bonus
Selecting high impact performance measures
Physicians need input on how performance is assessed
Trend has been to use measures that are widely available and nationally uniform, but few of those are in existence
Clinical validity of measures and the cost of data collection
Use of claims data or collection of additional information Standards of quality of care for each of the most common conditions specifying the minimum process
Collection of additional information
Making payment reward all high quality care
Many current P4P offer rewards for high relative performance but competition may limit collaboration and can create or sustain quality gaps between low and high performers
Alternative is to pay each provider an additional fee for appropriately managed patients for each recommended service every physician rather than a threshold Each physician will receive a bonus payment for appropriately managed patients
Prioritizing quality improvement for underserved populations Reducing disparities in health and health care through P4P to those that provide high-quality care to populations that are disadvantaged Will not yet be implemented.

The introduction of the Quality of Outcome Framework (QOF) in UK (27) and a cluster-randomized trial in the US using electronic health records with chronic disease management capabilities (28) are two examples of P4P in primary health care setting. A study analysing the long term effect of P4P on mortality in the UK (29) found a small reduction in mortality but QOF was not associated with significant changes in mortality but they also note that the QOF could have possible improved non-fatal outcomes.
Performance measures will be introduced including standards of quality of care for each of the most common conditions. Since appropriate performance measures are crucial, multiple stakeholders will be involved in the design. See Table 5 for a detailed outline.
Table 5: P4P in Practice
Design feature Description
Performance measures Quality measures covering most common clinical areas in primary health care practice
Basis for reward Each provider receives an additional fee for appropriately managed patients (26) (“each action”)
Number or percentage of appropriately managed patients with risk-adjustment, expected benefit is improved performance
Reward Bonus payment for appropriately treated patients, Incentives are paid on top of the standard FFS compensation (Frequency, size, lag time to be defined; P4P affects marginal productivity (30) and it is therefore important to consider which share of income is to be derived from each source)
Payment method MHI pays to its contracted physicians
Recipient of payment Bonus given to primary health care practitioners, at their discretion to use in practice (25)

Critical assessment and Challenges of the Policy
P4P has the potential to lead to a better transparency regarding quality in Switzerland and improved quality of care. There are several challenges connected with the implementation of P4P. It is not a foregone conclusion that this method will benefit patients and previous experience shows, that the implementation of P4P needs careful planning. One study from the UK looking at mortality in primary care after the introduction of P4P found that there a small reduction, but no significant changes in mortality. (29) Other studies show mixed results and the results remain inconclusive. (22,31,32) Evidence is scarce and P4P efficiency could not be demonstrated in a recent systematic review. (15) But the mixed results seen in those studies, could be due to the fact that there are flaws in the programs analysed. (26,33,34) With careful planning and regular evaluation of the P4P program, including targeted areas of poor performance, this risk could be mitigated. Additionally, measures and incentives should align with organizational priorities, and programs should allow for changes over time in response to data and provider input. (28)
One unintended consequence is multitasking (23), providers might shift resources towards rewarded dimensions which results in the neglect of other activities that are not remunerated and users being asked to demand remunerated services, including reductions in the quality of some aspects of care not linked to incentives and in the continuity of care. (31,35) Risk selection, also called cream-skimming, (23) with refusing high risk patients is also a possible consequence, this can be mitigated by not allowing refusal without clear clinical rationale. This would also reduce unnecessary referrals and help ensure access to primary health care services for all patients. (36) A further issue is, that risk selection might widen inequalities, (22) this can be prevented by adequate risk adjustment.
Also quality of care is hard to measure, which leads to other potential pitfalls of P4P. Quality measures might not be reliable and challenges also arise in measuring performance with a potentially complicated system and that is hard to monitor. The increased record keeping and the payment being conditional on collected data might lead to manipulation of records to increase income. P4P can therefore also create moral hazard through gaming behaviour, increasing the risk of false reporting or over reporting of activities. (12,30)
This essay has analysed the introduction of a P4P mechanism in primary care in Switzerland. In the current situation there are little incentives for primary health care practitioners in Switzerland to provide transparent high-quality care since they receive payment through FFS mechanism. Despite the potential pitfalls and challenges the introduction of P4P poses, it has a potential to improve information on quality through improved record keeping and may avert cost escalation. In Switzerland consumers have a significant choice between multiple providers, but little information is available on quality to inform their choice, the proposed reform will change this. P4P can be seen as a “strategic purchasing tool, helping to translate stated priorities into services” (30) promoting purchasers to pay greater attention to important issues and putting in place appropriate information systems.

Recognizing the current shortcomings of the FFS payment scheme, we recommend the introduction of P4P with careful monitoring and regular evaluation, well designed quality measures, including multiple stakeholders in the design of the quality measures with payers and physicians working closely together and allowing for changes where necessary. It is crucial that measures and incentives align with organizational priorities, and the program should allow for changes over time in response to data and provider input. (37) Additionally it is recommended to introduce it as a pilot on cantonal rather than national level. (25)

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